Retail Brokerages Must Seek Revenue From Customer Fees, FCA Says

Websites that offer investment advice should finance themselves by charging customers, rather than through fees from fund managers whose products are sold there, the U.K. finance regulator said.

The business model of online retail brokerages must be regulated so that investors can make “fully informed choices,” the Financial Conduct Authority said today in a statement on its website. Allowing websites to be financed primarily by fees from the companies whose products they sell risks limiting consumers’ choices because they won’t be offered products from providers who don’t pay, the regulator said.

“It can be difficult for investors to compare prices and products available on different platforms,” the FCA said. “These changes will allow both investors and advisers to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money.”

The FCA’s predecessor, the Financial Services Authority, said last year that changes were needed to payment practices even though they would have a “significant impact” on platforms’ business models.

The new rules will come into force on April 6, 2014. Platforms will have an additional two years to move existing customers to the new charging model.

Hargreaves Lansdown Plc (HL/), the U.K.’s largest retail broker, is “pleased to have confirmation of these rules, bringing the clarity we have awaited for some time,” Ian Gorham, the firm’s chief executive officer, said in a statement.

“We remain confident in our ability to provide clients with compelling services and competitive pricing in future,” he said.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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